FTX founder and former CEO Sam Bankman-Fried was arrested at his residence in the Bahamas on Monday, according to ABC News.
The U.S. Department of Justice’s Southern District of New York unsealed an indictment on Tuesday and charged Bankman-Fried on eight counts, “including wire fraud on customers and lenders, and conspiring to defraud the United States and violate campaign finance laws,” per The New York Times.
On Tuesday, the U.S. Securities and Exchange Commission filed charges, alleging that Bankman-Fried defrauded investors.
“Mr. Bankman-Fried is reviewing the charges with his legal team and considering all of his legal options,” his attorney told Axios in an email.
What happened with FTX?
FTX, previously one of the world’s largest cryptocurrency exchanges, went through its downfall when news broke in early November about Alameda Research largely depending on a cryptocurrency that FTX invented, and not an independent cryptocurrency, as I previously reported for the Deseret News.
By Nov. 11, the domino effect had led Bankman-Fried to file bankruptcy for FTX, FTX US and Alameda. But this still left millions of customers unable to access their funds, according to CNN News.
At the time, he apologized for the circumstances and hoped for government intervention in the world of cryptocurrencies, as I reported.
“I’m piecing together all of the details but I was shocked to see things unravel the way they did earlier this week,” he said at the time.
Why is the SEC charging FTX’s Sam Bankman-Fried?
The SEC said in a statement that Bankman-Fried is being charged for “violating the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.”
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in a statement.
According to Axios, Gensler has told Congress that he has the tools to deal with regulating cryptocurrencies.
The complaint alleged that Bankman-Fried concealed from investors that customer funds were being diverted to Alameda Research, the embattled former CEO’s privately-held crypto hedge fund.
It stated that Alameda Research was given “special treatment” with an unlimited credit line, which was funded by FTX customers.
Additionally, the SEC claimed that Bankman-Fried used Alameda “as his personal piggy bank to buy luxury condominiums, support political campaigns, and make private investments, among other uses,” per Fox News.
FTX’s Sam Bankman-Fried drafted his testimony
Bankman-Fried was scheduled to testify before the U.S. House of Representatives Committee on Financial Services before he was arrested.
Forbes obtained a draft of his testimony where he admits to being responsible but also claimed that he doesn’t have access to data that “could help inform customers, inform the Chapter 11 team’s decisions, and inform foreign regulators looking after FTX international. Nearly all of this data is held by the Chapter 11 team.”
According to Axios, the House Committee is left with FTX CEO John Ray as the witness. He is spearheading the bankruptcy process.
“The scope of the investigation underway is enormous,” he said in remarks ahead of the testimony, according to CNN.
Ray has painted a grim picture of what went on in FTX where “a very small group of grossly inexperienced and unsophisticated individuals” were in power.
In the draft testimony, Bankman-Fried stated that he has reached out to Ray and the Chapter 11 team on numerous occasions, at times “attempting to alert them to potentially important information.” He stated that his five emails to Ray have gone unresponded to.